Trading Nifty

Dear Gaurav
The market had been rising everyday with Gap up, this situation meant a breakdown would be sharp. It has happened.
There are ways to look at stop losses.
One can buy at price 11 and keep stop loss at 12 if the price goes up.
to 13 or something. This way at the least a positional SL would give a return and reduce the risk of Loss.
Regards/Max

i agree with swagat sir ji,
thats its miss nifty

we all love her
we all chase her
sometimes it gives pain to us ,but then also we r passionate about her
we all can not understand her(we boys can't understand miss)
on sat. sunday we miss her
we thinks lot about her
when she gives nod to our mind we just love her for that

i agree with u sir its miss nifty

warm regards
magnet man

good one!ha ha ha

Dear All,
I had planned to reply on Monday, but here is a reply to a stream of comments.

1. In my first few posts i had written about back up funds. Most people have obviously not read that. If you had invested all your funds in the market, then even a small fall will knock you out, forget a big fall. I believe that one has to be prepared to take a big fall in stride, so if you are stepping into the market without preparing for the worse, you are making a mistake.

2. If you have back up funds, then you can pay M to M as also have funds to hedge. Now we are 6500/- down, if we are to hedge, then our M to M loss would remain 6500/- whatever happens to the Nifty (even if it goes to 3500levels)

3. Some people have talked that they or their brother etc lost lakhs, so why is 6500/- M to M scaring you??

4. 6500/- is M to M and is NOT A BOOKED LOSS. Problems are booked Loss, not M to M.

5. All those who want the nifty to be taken to 3500, may do so by all means. I would still be smiling and happy. (Sincerely, i hope you all are also left smiling)

6. This is not a competition to show who is good or who knows more. I have nothing to prove to anybody. If you are interested in my stategies, do read. Ask as many questions as possible, i will answer them to the extent i know.

7. As i said do paper trades till you understand my methods.


With best wishes.


Gaurav Kumar

Excellent Write up. Very true and very precise. People who get away hitting SL will see the market with enthusiasm how deeply the market goes and wait for the trend to re-enter.

Raj

If your MM policy is too tight then it may hit your SL 6 times out of 10 but one gain can cover 6 such losses thats where Risk Reward ratio come into the picture. We dont need to be 80 or 90% accurate, if u r 50% accurate with a good risk : reward ratio puts you in the positive side.

Raj

Hi Gaurav,

I didn't understood the concept of hedging here. What are we trying to gain by hedging. Can you explain me by use of the example.

Now we are 6500 down and by hedging If the Nifty moves down to 3500 doesn't make any difference right. At the same time Nifty moves up to 5000 also it will be negated I guess. So still u will be 6500 down. Can you give a better example to explain.

Raj

when you buy call options or buy futures and the nifty falls 200 points the worst has already happened....in this situation people who dont have SLs are the ones who are least prepared ..

again you have mentioned hedging.......see hedging can be done in two ways :

1. u buy in cash market and simultaneously short the underlying derivative( this is the reason why the nifty futures is at a discount and there is panic selling in cash market when the futures position crosses market wide limit prescribed for the underlying……recently seen in securities like GMR , IFCI etc..) or
2. u buy call and puts options or buy and sell futures simultaneously. Infact there are different portfolio combination that are used depending upon the market condition.

In both situations you are not making money infact you are only protecting your profits or guarding against further losses.. see fund houses resort to the first variety inorder to protect their equity stake in a company(it also helps them in protecting the profits they have made already) in a market they believe has the potential to correct..


my brother is demat head of icici bank and lost money by taking positions based on internal alerts(which are reliable on most occasions) that are given from time to time..infact he would have made profits had this fall happened a day before and pls also note this time he lost only because of not having any SL ( SL would have atleast minimized his loss) which he realised a bit too late( he usually makes more than his salary from trading derivatives )..


loss is a loss whether booked or not .......anyways MTM losses are also debited from your bank account .

the possibilty of the market reaching 3500 cant be ruled out ......see FIIs think twice before investing and they do that in installments but when they decide to pull out money they dont wait or think and this may lead to the next big correction .

"Timing exit is as important as timing entry"- from the biggest fool in the entire planet.

Again iam not bashing or advising, take this as a piece of information and a last one that.


With best wishes.


Raja

Dear Friends,

1. Lots of doubts have been raised. To start with, i have not yet decided whether to hedge or not.. as i am in the process of calculating where nifty may go to.

2. We are 6500/- minus and as i said that if we hedge, we shall remain 6500/- minus irrespective of where market goes. This is true, but we are definitely not planning to live with the hedge forever..

3. Let us assume, we calculate that nifty is likely to go to 3500, then it would not go straight down. At some point it will give a temporary bounce.. What we do is that when it bounces back, we exit long position and continue with the short position making gains.

4. On the other hand, let us assume nifty is going to 5000, again it shall not go straight, but shall make a dip, where we exit short position and carry on with the long position.

5. The hedge at present (if we decide wo take), is only to ensure no further loss of M to M margin in the very short term, till the trend of the market becomes clear.

6. Some members have given the example of calls having been purchased, can hardly be hedged. I agree. If you have purchased calls earlier, you would anyway lose out on account of time decay. So calls cannot be hedged. Options are good tools to be used to hedge on futures and cash segmnet positions. But if you have already taken position in a hedge mechanism, then to hedge a hedge mechanism is not easy. (i use the term not easy.. but it is not impossible). It is for this reason that i never take positions in call and put options, which i would not be able to hedge. I do use calls and puts to hedge in case i require to.

7. As i said earlier that investing in markets should not be speculative.. It is a science that few understand. Also discipline is most important. This does not mean that i am perfect.. Nobody is.. But i have learned Stop losses dont work if you wish to make money.

8. I request all to wait and see how i handle this market. You would see for yourself that i would come out with positive gains.. You may compare my performance with yours.. and see which is better.

9. In a volatile market, most decisions end up being wrong. So on Friday morning, when i knew we are in for a big fall, i sat it out without bothering over intra day volatality.

10. As i have said earlier, one should be prepared for the worst. So when i take positions in the market, i take care that even a 300 point fall on nifty in one day can be handled. Once the intraday volatality is over, i then recalculate and take action accordingly.

11. It is indeed all about timing the market, but timing the market does not mean we should trade every day and take every small movement as a cue to market direction.

Hope that explains.

With best wishes

Gaurav Kumar

everyone talks abt m to m but no one talks abt MM i.e
Money Management!!!

a businessman trader is different from a gambler...
businessman always wins and gambler always loses no matter
how strict is the stop loss!!!

analyse your tolerance and enter the markets.. if u lose take it as
a part of business and dont blame your luck..
right mindset follows right path and money is earned..

to think i made a loss and i want to cover the loss is the destiny
of a sucker!!!

patience is the key...